Episode 429: The Price Of Things We Love

Jan 13, 2013
Originally published on January 13, 2013 10:11 pm

On today's show: Three short stories about the stuff we buy — books, toys and clothes.

1. Are E-Books Actually Destroying Traditional Publishing? Conventional wisdom says e-books are destroying the traditional publishing business model. People pay less for e-books and that drives down price. When you talk to publishers though, you realize the story's not that simple.

2. Why Legos Are So Expensive — And So Popular Legos often cost twice as much as similar blocks from a rival toymaker. So why are Legos so much more popular than other brands?

3. 3-D Printing Is (Kind Of) A Big Deal It's miraculous to see: Press a button, make anything you want. But will it transform the economy?

Music: Jonsi "Go Do." Find us: Twitter/ Facebook/ Spotify/ Tumblr. Download the Planet Money iPhone App.

Copyright 2018 NPR. To see more, visit http://www.npr.org/.

ZOE CHACE, HOST:

Hello, welcome to PLANET MONEY. I'm Zoe Chace.

CHANA JOFFE-WALT, HOST:

And I'm Chana Joffe-Walt. Today's show, what we pay for the stuff we love. It is one of those special episodes where we bring stories that aired on the radio to the show.

CHACE: And - so the things we love - right - they're books, toys, clothes. This is what we buy in a store that brings us joy. And today's show is all about getting behind the prices for those things that we love so much. And in particular, two things that are mysteriously priced. So first up, the books.

JOFFE-WALT: So prices for books have been changing a lot in recent years largely because of e-books. And the story that you always hear about e-books is that they are destroying the publishing business. E-books are cheaper than books you buy in a store so people then expect to pay less for books. This is all bad for publishers, right? Well, there's a more interesting story. Zoe, you did this piece. Let's hear it.

CHACE: There's a big problem with digital books for publishers - the same problem that exists for the record labels. People steal digital content, and there's not the same stigma to pirating an e-book as there is to holding up a Barnes and Noble. So that's a big issue. Turns out, though, that even with that, some publishers are doing great.

DOMINIQUE RACCAH: You know, we've had an incredible year. Last year was the best year in the company's history. This year was - we beat that, which I didn't think was even possible.

CHACE: Dominique Raccah is CEO of Sourcebooks. She says it's because of digital publishing, not in spite of it, that they're doing so well.

RACCAH: It's been an amazing ride.

CHACE: Turns out, there are a bunch of huge advantages for publishers. A big one - the price isn't fixed the way it is with physical books.

RACCAH: The challenging thing about physical books is that we price once.

CHACE: So 10 years ago, a publisher sends out their books to the bookstore with the price stamped on the cover. After that, they were done. They couldn't put it on sale to sell more books.

RACCAH: The exciting thing about digital books is that we actually get to test and price differently. We can even price on a weekly basis.

CHACE: Once you have this tool of a price that can be adjusted in an instant, you can do whatever you want with that tool. You can use it say to get publicity. That's what Little, Brown did with the title "An Unfinished Life," a Kennedy biography. In the middle of November, Little, Brown dropped the price from $9.99 to $2.99 for 24 hours. The digital equivalent of a one-day only sale.

TERRY ADAMS: That sparked sales. It gets people talking about it, and you've just expanded the market.

CHACE: Terry Adams is a publisher at Little, Brown. Dropping the price of "An Unfinished Life" got people's attention.

ADAMS: Here, we had an opportunity to increase the audience.

CHACE: To boost sales. In this case, the book launched up onto the best-seller list. And because you can jack it back up again, you're not stuck there losing money. This kind of promotion leads to discovery, something that used to just happen in bookstores. But with fewer of those around, publishers are using price to create discovery. It's like making music available for streaming so that someone will discover an artist and then buy a record. Speaking of...

(SOUNDBITE OF QUEEN AND DAVID BOWIE SONG, "UNDER PRESSURE")

CHACE: If you read the new iBook, "Forty Years Of Queen," you'd find it's got links in it to iTunes where you could buy this.

(SOUNDBITE OF SONG, "UNDER PRESSURE")

DAVID BOWIE: (Singing) Pressure pushing down on me, pressing down on you no man ask for. Under pressure.

CHACE: Another huge advantage of e-books - publishers can sell you things inside your book. It's still quite rare, but that's where digital publishing is headed.

(SOUNDBITE OF SONG, "UNDER PRESSURE")

QUEEN: (Singing) Um ba ba be, um ba ba be. De day da.

JOFFE-WALT: One thing that seems like it must be bad for publishers is that it is hard to give e-books as gifts. Like, over the holidays, I thought about giving a lot of people books, but I know they read Kindles and that - it just doesn't seem like that's done.

CHACE: Yeah. I mean, weirdly that's good for publishers, though, right - because people do buy physical books as gifts a lot. That's how people give books still. So it's just another revenue stream for publishers, and people still haven't figured out a good way to give a cheap e-book to someone.

JOFFE-WALT: OK. Should we do the next story?

CHACE: Yes. Our next piece is about the moment when you go to the store and you already know what you're going to get. You're psyched about what you're buying, you know about it already, you don't have to be convinced to get it. But then you see the price tag, and it just feels way more expensive than the experience you had planned in your head of buying the thing. And Chana, you found this out when you went to go buy something for your beautiful son, Jacob Francis Ritter (ph).

JOFFE-WALT: (Laughter) I went to buy him Legos, and I had no idea Legos are really expensive. I wanted to get just, like, a basic bucket of Legos for toddlers, and it was $59.99 for 102 Lego pieces that are basically just plastic blocks. Let's hear the piece.

UNIDENTIFIED CHILD #1: Legos cost a lot of money.

UNIDENTIFIED CHILD #2: Yeah, actually, they are expensive.

UNIDENTIFIED CHILD #3: Yeah, they're really expensive.

JOFFE-WALT: So when I met Luke Siegel (ph), Mario Tanassay (ph) and Nicholas O'Sullivan (ph) - fourth-grade Lego experts, I asked them, was that normal?

How expensive do Legos get?

UNIDENTIFIED CHILD #2: Oh, like 200.

UNIDENTIFIED CHILD #3: No. No. I've seen expensive - no.

UNIDENTIFIED CHILD #2: There's an expensiver (ph) one that's $400.

UNIDENTIFIED CHILD #1: One hundred fifty, max.

UNIDENTIFIED CHILD #2: No.

UNIDENTIFIED CHILD #3: Well, I've seen one that's 400 before.

JOFFE-WALT: Lego appears to be basically immune to competition. It has about 70 percent of the construction toy market. And the question is, why? Again, these are plastic blocks we're talking about. Legos patents expired a while ago. So how hard could it be to make a cheap knockoff? I brought this question up with Luke, one of the 9-year-old old Lego experts. And I, you know, said something like, what's so hard about making Legos?

LUKE SIEGEL: They pay attention to so much detail. I've never saw a Lego piece that has a little bump on it that couldn't go together with another one.

DAVID ROBERTSON: Lego spends a lot of attention on clutch power.

JOFFE-WALT: Experts of all ages agree on this, although David Robertson had a fancy term for what Luke is talking about. Robertson's writing a book about Lego's remarkable success, which he says has had a lot to do with clutch power.

Clutch power?

ROBERTSON: Clutch power, yeah.

JOFFE-WALT: What is that?

ROBERTSON: Yeah, that - well, what you want when two bricks stick together is you want that satisfying click.

JOFFE-WALT: David Robertson told me, look inside any Lego brick - he calls them bricks - and there are three numbers in there. Those three numbers tell you exactly what kind of Lego brick you are holding, say a two-by-four. They tell you when it was made, from what mold and in exactly what position in that mold.

ROBERTSON: So if this brick didn't fit right, if it was too loose or too sticky or snapped apart, they could go find mold 238 and look at the 15th brick impression in that mold so that they could fix it and make sure that it continued making every single one of the 60 million bricks that it's going to make exactly right.

JOFFE-WALT: For decades, this is what kept Lego ahead. But over the last several years, a competitor has emerged with clutch power that, at this point, rivals Lego - Mega Bloks. Mega Bloks are plastic blocks that look just like Legos, snap onto Legos and are often half the price. So Lego tried other ways to stay ahead, like suing. David Robertson says Lego tried to trademark its block, basically, say nobody has the right to make a stacking block that looks like a Lego.

ROBERTSON: That didn't fly, and it didn't succeed anywhere. Every single country that they tried to make that argument in decided against Lego.

JOFFE-WALT: Lego needed to do something Mega Bloks could not copy. Something dramatic, big.

(SOUNDBITE OF COMMERCIAL)

UNIDENTIFIED ACTOR: (As character) Build your own galaxy with the three new planets from Lego "Star Wars." Each set...

JOFFE-WALT: Lego got exclusive rights to "Star Wars." If you want to build a Death Star, Lego is now the only company that can make that happen.

ROBERTSON: As a business decision, it was maybe one of the best ever.

JOFFE-WALT: And Lego kept going, licensing other properties.

ROBERTSON: There's the Lego "Indiana Jones" series, Lego "Winnie The Pooh."

UNIDENTIFIED CHILD #2: There's a "Toy Story" Lego.

UNIDENTIFIED CHILD #3: Yeah.

UNIDENTIFIED CHILD #2: Also for my birthday, I want the Hogwarts castle for "Harry Potter."

JOFFE-WALT: David Robertson says buying rights to "Star Wars" and "Harry Potter" saved Lego. The money was huge. But more importantly, it taught Lego that what customers wanted to do with the blocks was tell stories. So Lego makes or licenses the stories customers want to tell. And by doing that, Lego's managed to keep lots of kids feeling the way Luke does.

LUKE: Like, if you were talking to a friend, you wouldn't say, oh, my God, I just got a big set of Mega Bloks. Like, they wouldn't be like, oh, my God. When you say Legos, they would probably be like awesome. Can I go to your house and play?

JOFFE-WALT: But, of course, Zoe, on this score Mega Bloks can copy Lego too. They can buy the rights to properties kids love, and they are doing that. Mega Bloks now has "Thomas The Tank Engine," "Halo" - which is really popular in the Mega Blok category and Barbie.

CHACE: So I have a different idea, which is forget $60 for Legos or whatever you would pay for Mega Bloks, which is that you can just print your own. You can make your own blocks these days with a 3-D printer.

JOFFE-WALT: A 3-D printer. You keep talking about 3-D printers. This is, like, a mini obsession of yours, Zoe.

CHACE: Yes.

JOFFE-WALT: So you've been wondering can 3-D printers transform the economy? Like, there is all this hype about how 3-D printers are going to be game changing as a technology. They are going to be like the telegraph or the personal computer. And Zoe, you wanted to know - you know, first of all, could it be possible that they are a game changer? And more importantly, what exactly is a 3-D printer? Here's that story.

CHACE: First, the 3-D printer is the biggest misnomer ever. Do not think printer. Think magic box that creates whatever object you can imagine.

PETE WEIJMARSHAUSEN: Watch it. Watch it. It will come.

CHACE: (Laughter).

WEIJMARSHAUSEN: There it goes.

CHACE: Pete Weijmarshausen peers into one of the printers about the size of a refrigerator. He's the CEO of Shapeways, a 3-D printing company in New York. Inside, razor-thin layers of raw material - powdered acrylic, powdered nylon, powdered silver, whatever - are deposited precisely one on top of the other. You look through the window, like an oven window, and see the object taking shape from the bottom up.

WEIJMARSHAUSEN: And this is how it grows, layer by layer.

CHACE: Oh, I see.

After a few hours, you've got stuff. All kinds of stuff.

UNIDENTIFIED WOMAN: So here, we have a shoe.

WEIJMARSHAUSEN: Rings, bracelets, pendants, iPhone cases.

UNIDENTIFIED WOMAN: Yeah.

CHACE: Yeah, I see that.

WEIJMARSHAUSEN: Lots of them. iPad cases.

CHACE: Seeing it in front of you, it's hard not to imagine this will have a radical impact on the economy. It's miraculous looking. Press a button to make an actual thing out of raw materials - that looks like a revolution. But the industrial revolutions we're familiar with they're very different from what I'm seeing here. Say, the steam engine - those technologies centralized production, made mass production of stuff into huge business. Terry Wohlers is an analyst who's been watching 3-D printing technology since its inception 20 years ago. And he says that's not the right comparison to make. The 3-D printer does not replace what came before it.

TERRY WOHLERS: If you're producing, say trash cans or stadium seats, you'll more than likely produce them the old way in Asia using conventional methods of manufacturing.

CHACE: What is revolutionary or at least innovative is how flexible this allows manufacturing to be. Right now, you can only 3-D print out of certain materials, but soon enough, you'll be able to make stuff out of anything. That's how Weijmarshausen, the 3-D printing CEO, sees it.

WEIJMARSHAUSEN: Say you want a T-shirt that is perfect for you. Now, I think, in a few years we can print clothing. And then you can have clothing without sizes, but you have the size that fits you.

CHACE: So you don't order a small, medium or large. You order like a Zoe.

WEIJMARSHAUSEN: Yes.

CHACE: Just imagine for a second everything you would want custom-made, super cheap. And this is already happening. You fly in planes from Boeing and others with parts in them that have been 3-D printed. Right now, there are 30,000 people walking around with 3-D printed titanium hips inside - way less expensive than they used to be.

WOHLERS: And they're just getting started. The possibilities in orthopedic manufacturing really is almost limitless.

CHACE: In the future, analyst Terry Wohlers says forget about titanium or even cotton. Try human tissue.

WOHLERS: You lose a finger, you print out a new one.

CHACE: Yeah, like actual body parts, printing out new fingers using your cells.

WOHLERS: Bones and bladders and eventually, kidneys and so forth.

CHACE: There's another thing to keep in mind, though, about the arrival of 3-D printing. If the industrial revolutions that we know centralized things gave birth to enormous companies that make a massive amount of things, 3-D printing kind of reverses that process.

CHRIS ANDERSON: What's new is the fact that the most advanced, you know, machines are now as accessible to regular people as they are to the biggest companies.

CHACE: Chris Anderson is not strictly a regular guy. He's the former editor of Wired magazine. Now, the CEO of a robotics company. He says the 3-D printer democratizes who gets to be in manufacturing. Anybody with a good idea can have a pretty good prototype really cheaply and then bring that product to the masses.

ANDERSON: Taking a product from one to many, taking a product through its entire cycle from invention to creation and marketing and building a company around it, that just wasn't possible in most of the 20th century because manufacturing was just so hard and inaccessible.

CHACE: So if you want to go into business manufacturing stuff, there's a much lower barrier to entry. Soon enough Anderson says you might see 3-D printers showing up at Walmart or Barnes and Noble, on desktops, in the office, whatever. That doesn't mean everybody will do it. But the fact that it is now so easy to be the boss of your own factory, that is a pretty revolutionary idea.

ANDERSON: You know, Karl Marx's line that, you know, the power belongs to those who own the means of production. And regular people didn't know the means of production.

CHACE: And isn't it funny how it's working out? It's capitalism that's taken the means of production and turned it into a point-and-click experience for anyone.

(SOUNDBITE OF JONSI SONG, "GO DO")

CHACE: That is our show today. As always, please, let us know what you think. Email us - planetmoney@npr.org. You can find us on Facebook, Twitter, Tumblr, npr.org/money, all that.

JOFFE-WALT: I'm Chana Joffe-Walt.

CHACE: I'm Zoe Chace. Thanks for listening.

(SOUNDBITE OF SONG, "GO DO")

JONSI: (Singing) You wish silence released noise in tremors. You wish, I know it, surrender to summers. We should always know that we can do everything. Transcript provided by NPR, Copyright NPR.